Wednesday, May 27, 2015

Anyone who thinks that ideas don't matter should examine the career of Robert Mundell. Yes, it can be argued that the zeitgeist of the late 1970s and early 80s was fertile ground for an organized reaction to the Keynesian school of economics and who provided the details was pretty much irrelevant. Such arguments are usually based on the life and times of one Arthur Laffer who supposedly first sketched his justification for upper-income tax cuts on a cocktail napkin. So even though Laffer calls himself the father of Supply-Side Economics, he was always a lightweight—another buffoon in the long history of lapdogs for the rich. Mundell, OTOH, was as serious as a stroke. And while his name has also been associated with Supply-Side, his work on the creation of the Euro ensures that no one will ever think he was a lightweight.

Regular readers around here are familiar with my thesis that the social failure of the Euro is directly traceable to its neoliberal design. You could smell the massive unemployment and social chaos the Euro would bring the day the Maastricht Treaty was signed because it was designed to destroy democratic control over economic policies of importance. And because that role of the Euro has been so successful, Mundell's creation will go down as one of the greatest triumphs of the idle rich—and they have had a bunch of them.

Robert Mundell, evil genius of the euro

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan

Greg Palast 6 October 2014

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed: "They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"

As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: "Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.

Monti and Draghi cannot credibly explain how, if every country in the Continent cheapens its workforce, any can gain a competitive advantage.

But they don't have to explain their policies; they just have to let the markets go to work on each nation's bonds. Hence, currency union is class war by other means.

The crisis in Europe and the flames of Greece have produced the warming glow of what the supply-siders' philosopher-king Joseph Schumpeter called "creative destruction". Schumpeter acolyte and free-market apologist Thomas Friedman flew to Athens to visit the "impromptu shrine" of the burnt-out bank where three people died after it was fire-bombed by anarchist protesters, and used the occasion to deliver a homily on globalization and Greek "irresponsibility".

The flames, the mass unemployment, the fire-sale of national assets, would bring about what Friedman called a "regeneration" of Greece and, ultimately, the entire eurozone. So that Mundell and those others with villas can put their toilets wherever they damn well want to.

Far from failing, the euro, which was Mundell's baby, has succeeded probably beyond its progenitor's wildest dreams. more